Suppose you are willing to pay $1,000 for a low-quality used car and $8,000 for a high-quality used car. If there is a 60 percent chance of getting a low-quality car and a 40 percent chance of getting a high-quality car, you are willing to pay ___ for a used car. (Enter your response rounded to the nearest dollar.)

Willing to pay $3,800 for a used car.

Explanation:

Low Quality Used Car = $1000

Probability of getting low quality used car = 60%

High Quality Used Car = $8,000

Probability of getting high quality used car = 40%

Since both the low quality and high quality are used cars, we can calculate how much to pay for used car by taking weighted average of high quality and low quality used cars, and, assign weights as the probability of getting each car:

⇒ (1,000 * 60%) + (8,000 * 40%)

⇒ 600 + 3,200

⇒ $3,800